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The Scariest Chart You'll See This Month

By Jeff Clark
Tuesday, October 19, 2010

OK, that's it. No more bearish comments from me. From now on, it's all bull, all the time.
 
Everything is just fine, and investors shouldn't have a care in the world. Stocks will go up as the economy improves. And if things don't improve, then the Fed will just print enough money to force the markets higher. It's guaranteed. It has to happen. After all, the good folks at CNBC repeated that theory dozens of times last week.
 
So I'm packing up my raincoat and putting away the umbrella. Winter has been banished from the financial markets. From now on, it's all sunshine, swimsuits, and piña coladas.
 
Kick off your shoes and come frolic with me along the beach. Let the gentle waves of the ocean nip at your toes as we dance along the shoreline, thinking only of the riches we'll receive as the Fed waves its magic wand above the financial markets.
 
Come on in. The water's fine!
 
Oh... I should mention... there is just one itsy bitsy teenie weenie little thing...
 
 
This is a 60-minute chart of the S&P 500. As you can see, the index is tracing out a bearish rising-wedge formation, with negative divergence on the MACD momentum indicator. It's the same pattern I wrote about back on April 15 – the last time I promised to quit with the bearish talk.
 
Back then, the S&P 500 broke the wedge to the downside and went on to lose 20% in two months. I'm sure we'll be fine this time, though. Bearish wedges only break to the downside something like 80% of the time. Besides, the Fed is on our side, interest rates are low, and quantitative easing is in full force.
 
Of course, all that was true back in April, too... and it didn't stop the market from tanking. But things are different this time. They said so on CNBC.
 
Stop being such a party pooper and come on in the water.
 
What's that? You see dorsal fins poking out through the waves? Oh, don't worry about that. I'm sure it's just a school of dolphins playing tag.
 
Besides, Ben Bernanke and Tim Geithner are lifeguards. What can you possibly be worried about?
 
Best regards and good trading,
 
Jeff Clark




Further Reading:

Take a look at the last time the S&P was set up like it is today... just days before a 200-point correction... here: The Scariest Chart You'll See This Week.
 
...And the time before that, which led to a 100-point correction here: The Market Must Hold This Level.

In The Daily Crux
Market Notes
Drugmakers Eli Lilly, Allergan, Forest Labs surge to new highs.
 
Investors love a "slow and steady" uptrend… more than two-dozen utility stocks on 52-week high list.
 
Rare earth producer Molycorp hits fresh high… up 144% since going public in July.
 
Earnings today... Johnson & Johnson (health care), Coca-Cola (beverages), Bank of America (banking), Goldman Sachs (investment bank).
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1165.90 -1.6% +6.2%
Oil 34.62 -4.6% -15.1%
Gold 130.11 -3.1% +24.8%
Silver 22.84 -4.7% +31.0%
US-Dollar 77.08 +0.1% +2.4%
Euro 1.37 -1.5% -8.2%
Volatility 20.63 +8.1% -4.0%
Gold Stocks 495.16 -5.1% +10.4%
10-Year Yield 2.47 -0.8% -27.1%

World ETFs
Symbol Price
Change
52-Wk
USA 116.73 -1.3% +6.3%
Canada 28.41 -2.1% +6.1%
Russia 19.62 -3.4% -3.5%
India 37.72 -2.7% +20.1%
Israel 16.40 -2.3% +14.5%
Japan 10.12 -0.9% +1.6%
Singapore 13.56 -2.3% +21.8%
Taiwan 13.05 -3.1% +3.4%
S. Korea 52.79 -5.7% +12.4%
S. Africa 67.67 -4.5% +16.3%
China 45.24 -2.4% +1.7%
Lat.America 51.26 -3.3% +8.3%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 115.49 -3.1% -11.6%
Big Pharma 65.84 -1.4% -3.2%
Internet 65.35 -2.0% +25.5%
Semis 13.36 -1.8% +7.4%
Utilities 31.96 +0.2% +6.1%
Defense 17.49 -1.7% +5.1%
Nanotech 9.37 -3.0% -12.6%
Alt. Energy 9.93 -3.4% -10.3%
Water 17.04 -2.6% +3.0%
Insurance 15.64 -0.9% +10.4%
Biotech 19.90 -2.3% +16.0%
Retail 17.63 -2.5% +9.6%
Software 22.72 -1.9% +13.9%
Big Tech 50.82 -0.9% +17.6%
Construction 12.04 -1.5% -2.0%
Media 12.68 -1.9% +13.8%
Consumer Svcs 61.85 -1.5% +13.3%
Financials 52.74 -1.1% -2.1%
Health Care 63.84 -1.7% +5.5%
Industrials 58.77 -1.5% +12.8%
Basic Mat 66.68 -2.8% +13.9%
Real Estate 55.04 +0.5% +28.2%
Transportation 83.85 -1.3% +15.8%
Telecom 21.62 -1.4% +16.9%